Can the IRS Levy a Joint Bank Account?
Yes, the IRS can levy a joint bank account, even if only one of the joint account holders owes money to the IRS.
In Internal Revenue Manual Section 5.11.2.2.1(1)(b), the IRS states:
“Any property in which the taxpayer has an interest is subject to levy, even if the property is jointly owned with another person (e.g., community property, jointly owned bank accounts).”
That said, the IRS does not appear to prioritize levying joint bank accounts since it goes on to say:
“However, because wrongful levy suits and claims can result from such levies, [IRS collections personnel should] consider levying on another available source.”
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How IRS Levies on Joint Bank Accounts Work
Unfortunately, the IRS can take money out of your joint bank account if you another individual on the account owes money to the IRS.
That said, there are hoops that the IRS has to jump through before it levies your joint bank account.
Step 1: Pre-Levy Actions
Before it can even serve a levy to the bank holding your joint bank account, the following things must have happened:
- The IRS must have properly assessed a tax liability against at least one of the joint bank account holders.
- The IRS must have given sufficient noticed — as required by Internal Revenue Code Sections 6303, 6330, and 6331 — to the taxpayer who owes them money. The most common notices that satisfy these requirements are the Notice CP14, the Notice CP504, and the Letter LT11.
And even if the IRS made proper assessment and notice to you or this other individual who owes the IRS money, it still can’t just go into your joint bank account and take the funds; there’s a process here that the IRS must go through.
Step 2: The Levy Notice
And the process is the IRS sends your bank the levy notice on Form 668-A(c)(DO) (sometimes referred to as simply “Form 668-A”).
This form has basic personal information of the taxpayer who owes the IRS — this could possibly be you, or it could be the person with whom you own the joint bank account with — at the top, and it lists out the balances by year that this individual owes along with a total, and at the bottom of this form it gives instructions to your bank as to what to do upon receipt of this Form 668-A:
“This levy requires you to turn over to us this person’s property and rights to property (such as money, credits, and bank deposits) that you have or which you are already obligated to pay this person. However, don’t send us more than the ‘Total Amount Due.’”
So what this 668-A is doing is informing the bank that they have to give the IRS whatever is in the bank account up to the total amount due indicated on the notice and up to the amount in the account when the levy was served.
Step 3: The 21-Day Freeze Period
Now, when the bank gets the levy notice, it does not send your money to the IRS immediately; there is a 21-day freeze period that is mentioned in the 668-A itself where it says:
“Money in banks, credit unions, savings and loans, and similar institutions described in section 408(n) of the Internal Revenue Code must be held for 21 calendar days from the day you receive this levy before you send us the money.”
And this freeze period is very important because it is during this period that you have a shot at getting the levy on your joint bank account released.
And this brings us to my next point.
What To Do If the IRS Has Frozen Money in Your Joint Bank Account
If your joint bank account has been hit with a levy, you need to address it and you’re still in that 21-day period, here is what you should do.
Step 1: Figure out how much was actually levied.
If when the levy hit your joint bank account, you only had ten dollars in your account, you don’t really have to freak out.
Whoever has the tax issue — be it you or the other person on the account — should deal with this issue as quickly as possible because the IRS could certainly levy the account again when there’s more money in it, but if there’s no continuous levy going on right now, the IRS is going to get those ten dollars after those 21 days, but there’s not this sense of urgency in fixing this issue within the 21 days because if you don’t reach a resolution with the IRS within the 21 days, all the levy would grab is just ten dollars.
Step 2: Get your bank’s fax number.
Assuming that there’s a material amount in your bank account on the date the bank was hit with the levy — some balance a lot more than ten dollars — you want to move quickly with getting the levy released.
And before you actually interface with the IRS, I would recommend that you get the fax number of your bank — if it’s a big bank, figure out what the appropriate department is in your bank that handles IRS levies and ideally a specific person at your bank who can be your point of contact here and get their phone number and their fax number.
And the fax number is important because once you get the levy released by the IRS — assuming you get it released — I want you to be able to give the IRS the fax number of this individual so that instead of mailing the release, they can fax it directly to them.
Step 3: Determine your plan of action.
Now, figure out how you’re going to get the levy released. Read on for how to do that.
6 Ways to Get an IRS Joint Bank Account Levy Released
Here are the six ways you can get an IRS joint bank account levy released within the 21-day hold period:
- Pay off your balance — or, if it’s the other individual on the account that has the balance with the IRS, urge them to pay it off.
- Request a little more time to pay off your balance — or, it’s the other individual on the account that has the balance with the IRS, suggest that they request more time to pay off their tax debt.. The IRS doesn’t always grant informal requests like this, but if you or the other individual come up with some kind of game plan for how you (or they) are going to pay off the balance in the near future, the IRS may buy it and release the levy.
- Set up an installment agreement or have the other individual set one up — and make sure the terms of the agreement don’t permit a levy.
- Prove that the levy is creating an economic hardship for you. This doesn’t just mean that the levy is inconvenient — it means that the levy is preventing you from meeting your basic, non-luxury living expenses. This is commonly done by getting into CNC status, but you can also take a more informal approach based on a conversation with the IRS employee who issued the levy. If you are really about to lose your shirt due to the levy, and the IRS employee who issued the levy is being unreasonable, speak with that individual’s manager. If the manager is being unreasonable, reach to the Taxpayer Advocate Service for help.
- Submit an offer in compromise — or have the other individual on the account do so if the problem is their tax debt.. An offer in compromise is an agreement with the IRS to settle a taxpayer’s tax debt for less than they owe. Although 21 days is a very short time period to prepare and submit an offer in compromise, this could work if the offer actually has a good chance of being accepted based on the offer in compromise formula and is not a frivolous attempt to delay collections activities.
- Prove that the levy was not administered according to proper procedures. This can be tough since usually the IRS does follow proper procedures before levying a taxpayer’s bank account, but sometimes they don’t, so you have a shot here.
Realistically, with most of our clients, we either set up an installment agreement or plead hardship within the 21-day period to get the levy released.
Then, after that bleeding has stopped — or, rather, we prevented the bleeding with the metaphor here referring to the bank levy — we consider a longer-term solution to the client’s issue.
Maybe it’s looking at the liability the IRS claims that they owe and digging into whether they really owe that much money.
Or maybe it’s submitting an offer in compromise because like I said, that would be tough to do within a 21-day span, but that could be a viable long-term solutions.
For more information about the IRS tax relief methods that you can use to stop joint bank account levies permanently, check out my article on the six IRS tax forgiveness programs or watch my video below!
Author:
Logan Allec, CPA, Founder and Owner
Logan Allec has been serving taxpayers as a CPA for over 14 years. After leaving his role at a "Big 4" firm, he started Choice Tax Relief to help everyday Americans who have found themselves behind on their taxes. He also educates thousands of people daily about tax relief on his YouTube channel. In addition to his CPA license, Logan also has a Master's Degree in Taxation from the University of Southern California (USC). He lives with his wife and children in the Los Angeles area. Learn more about Logan here.
